What is a reverse mortgage?
A reverse mortgage is a special type of home loan that enables you to access a portion of your equity tax-free. The loan amount is based on age, home value and the current interest rate. Unlike traditional home loans, or second mortgages, no repayment is required until the homeowner(s) no longer occupy the property as their primary residence. Learn more about the different types of reverse mortgages.
Who should get a reverse mortgage?
They are designed for homeowners at least 62 years of age with moderate to significant equity in their homes.
Reverse mortgages only benefit “equity rich” and “cash poor” senior citizens.
While it is true that some seniors may have greater need than others for cash or an increased monthly income. It is also true that a reverse mortgage can be an excellent strategic financial and estate planning tool for any senior that has sizeable equity in their home
Can I get a reverse mortgage if there is already a mortgage on my home?
Yes, but any existing mortgages must be paid off at closing. The proceeds from the reverse mortgage may be used for that purpose.
Do I need steady income and good credit to qualify?
There are no income or credit requirements.
What types of homes qualify for a reverse mortgage?
The following types do NOT qualify for a reverse mortgage: vacation homes or other secondary residences, mobile or manufactured homes (not attached to a permanent foundation), rental properties of more than four units and homes on leased lands.
Will I have any tax liability for the reverse mortgage proceeds?
Reverse mortgage proceeds are tax free because they are considered borrowed funds. The IRS treats monies received from a reverse mortgage to be loan advances and not taxable income. We always recommend that you consult your tax advisor for more detailed information.
What if my home is in a “living trust”?
A homeowner who has put the home in a living trust can usually take out a reverse mortgage, subject to review of the trust documents.
Does the money from a reverse mortgage affect Social Security, Medicare or pension benefits?
The proceeds from a reverse mortgage do not affect these benefits. We recommend that you consult your financial advisor for more information.
Can the interest charged on my loan principal be deducted for tax purposes?
The interest accrues and is deductible when the loan balance and interest is repaid, which is typically when the borrower permanently leaves the property. We recommend that you consult your tax advisor for more information.
Will a reverse mortgage affect my SSI or Medicaid?
No, a reverse mortgage will not affect these or most other means tested benefits as long as the monthly cash advances are fully spent every month and not accumulated. Programs do vary by state so it’s advisable to check with your local area agency on aging.
What upfront costs are associated with a reverse mortgage?
The borrower will pay an origination fee and closing costs, including charges by the title and escrow companies. All of these costs can be financed as a part of the initial loan advance.
What is due when the loan is repaid?
The borrower will pay back the cash advances they have received plus accumulated interest. Any upfront costs that were financed initially will also be added to the loan balance.
Will I ever owe more than my home is worth?
No. All reverse mortgages are “non-recourse” loans, meaning the borrower can never owe more than the value of the home regardless of loan balance.
Will the lender will own my home
No, you and your heirs/estate retain ownership of the home. The lender’s interest is limited to the loan balance and they will NEVER take control of the title.
Will the lender take my house?
No, this is a misconception; a reverse mortgage is a loan against the property. The title remains in the name of the borrower(s) and the lender is only repaid the loan balance or home value, whichever is less.
If there are no payments, what are my responsibilities?
You are required to pay your property taxes, keep the property insurance current, maintain the home, and notify the lender if you will be away from the property for an extended period of time.
How do I receive my money?
You have four options: Lump Sum, Monthly Payments (your choice of loan advances for a specific period, or for as long as you live in your home), Line of Credit (unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted), or any combination you would like of the above three choices.
When does the loan become due and payable?
The loan is due and payable when the last remaining borrower sells the property, permanently leaves the home, or passes away. Until these events take place you live in the home and make no payments to the lender.
Do I or my heirs have to sell the property to repay the loan?
No. Repayment can be accomplished by a refinancing of the existing reverse mortgage with a conventional mortgage loan. The loan is not due and payable until the last remaining borrower sells the property, permanently leaves the home, or passes away.